Making Cents: Take personal approach to legacy planning

There are two sides to legacy planning. One is the financial side. The other is the personal side, such as values and work ethics.

John P. Napolitano

There are two sides to legacy planning. One is the financial side. The other is the personal side, such as values and work ethics.

The financial side is what we usually talk about in this column, but today I want to discuss the personal side.

Many clients want their children and grandchildren to lead responsible, productive lives and not become privileged, unmotivated adults. This is especially true for those who endow future generations with money, valuable real estate or a business that the founder would love to see survive.

You can start this process by being responsible with money and dealings with your children or grandchildren. Continuing to fund frivolous behavior or failed ventures doesn't help anyone.

If you'd like to help your son or daughter start or acquire a business, treat it as you would any venture with an independent party. Hold the partner or borrower accountable, with collateral and some strings, just as you would when investing in a venture with someone you don't know too well.

When lending money to a child to buy a home, make sure that you have a binding, legal promissory note. It would be even better if it was secured as a mortgage and had terms that resembled what a bank may offer the borrower. You can always help out later with forgiveness or annual gifting.

If there is a family business, proper succession planning is a must.

This starts with making sure that you have legal agreements and have the plan funded with life insurance. When the plan either has children in the business or being part of the future succession plan, you should follow sound business management principles when dealing with the children and the business.

Many business owners want to leave their businesses to all their children, but that may not work well if they've got some children who work and know the business and others who have no interest. Hire a professional and come up with a plan that can match your best intentions with balancing the financial consequences to keep family harmony. A good succession plan should start at least five years prior to the desired transition date, and it may need to call for hiring non-family members to fill key positions.

The last part of protecting your personal legacy may come through your trusts and the people that you choose to act as trustees beyond your lifetime. Not having the perfect person today is a poor excuse for procrastinating. Choose as best you can, and update your choices as the situation evolves.

John P. Napolitano is the CEO of U.S. Wealth Management in Braintree, Mass. He may be reached at jnap@uswealthcompanies.com.

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